What You Need to Know for 2025/26
The Winter Fuel Payment has been a welcome tax-free boost for many households over the years, helping to ease the cost of heating during the colder months. But from winter 2025/26, there’s a twist you’ll want to be aware of – especially if your income tips over a certain threshold.
Here’s what’s changing, and how it might impact you or your business.
What is the Winter Fuel Payment?
If you’re over State Pension age, you’ll usually receive a Winter Fuel Payment each year – a tax-free lump sum intended to help with heating costs. Payments range from £250 to £600 depending on your age and circumstances.
Up until now, these payments haven’t needed to be paid back. But from winter 2025/26, the rules are changing if your annual personal taxable income exceeds £35,000.
The Income Threshold: How the Reclaim Works
If your personal taxable income is under £35,000 per year, you’ll keep the Winter Fuel Payment in full. Nothing changes.
However, if your personal taxable income is over £35,000, you’ll still receive the payment initially, but HMRC will automatically claim it back through the tax system.
Here’s how:
- If you’re employed (PAYE): Your tax code will be adjusted to collect the repayment gradually.
- If you file a self-assessment tax return: The amount will be added to your liability and collected when you submit your return.
So, while it’s technically still a “tax-free” payment, for higher earners, it’s more of a short-term loan than a gift.
Can You Opt Out?
Yes – and for many, it might make sense to do so.
If you don’t want to receive the Winter Fuel Payment (because you know you’ll just have to pay it back later), you can opt out online or by phone before the payment is made. This avoids the faff of HMRC adjusting your tax code or increasing your tax bill later on.
A Quick Example
Let’s say you run a successful owner-managed business and take home a mix of salary and dividends totalling £45,000 per year. You’re over State Pension age, so you’re eligible for the Winter Fuel Payment.
In January 2026, you receive a payment of £300. Nice surprise, right?
Well… not quite. When your tax return is submitted, HMRC will see you earned more than the £35,000 limit, so the £300 will be added to your tax bill. You will either pay it back in one go or see it drip out via your tax code if you’re on PAYE.
How This Fits into Your Wider Tax Planning
This update is just one piece of the puzzle. With dividend allowance cuts, Capital Gains Tax (CGT) tweaks and National Insurance thresholds all shifting, 2025/26 is a great year to review your personal tax plan.
For example:
- Salary vs dividends: Getting the right mix can reduce your overall tax bill and affect whether you go over the £35,000 Winter Fuel threshold.
- Pension contributions: These are still one of the most efficient ways to reduce your taxable income – and could help keep you below the line.
Want to Know Where You Stand?
If you’re not sure how this will affect you, or whether you should opt out of the payment, we’re here to help. We’ll take a look at your situation and give you practical, personalised advice that makes the most of your income – and keeps your tax bill as low as legally possible.
Call GreenStones on 01733 371180
Email advice@greenstones.co.uk
Let’s make sure you’re not giving anything back unnecessarily.